"EU Due Diligence Proposal Expected Before end-February", 11 February 2022

Companies and investors have called for the European Commission to swiftly adopt proposals for mandatory human rights and environmental due diligence, expected to be published on 23 February as part of its much-delayed Sustainable Corporate Governance initiative.

Investor signatories include Aviva Investors, Triodos Bank and EFG Asset Management; corporates such as Danone, Epson and IKEA also signed the declaration.

As well as requiring firms to monitor environmental impacts across their supply chains, the initiative will introduce due diligence requirements for corporates to identify, prevent and account for human rights abuses, in line with UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises.

The ability of companies and investors to understand environmental and social impacts along supply chains has become an increasingly urgent issue. Last month, the UN-convened Net Zero Asset Owner Alliance noted difficulties in obtaining accurate data on investee firms’ Scope 3 emissions, which refers to the carbon emissions of suppliers and consumers...

...In the statement addressed to the Commission, over 100 companies, investors and business associations outlined five key principles they believe should be included in the legislation.

These include ensuring due diligence obligations extend across corporates’ full value chains, embedding requirements in appropriate governance structures such as corporate boards, and introducing credible accountability mechanisms.

Following its expected publication towards the end of this month, signatories have urged the Commission to “adopt [the] legislative proposal without further delay”.

The Commission has declined to confirm precise timing for the publication of the proposals, noting only that staff “are working intensively on preparations”.

Julia Otten, Policy Officer at law firm Frank Bold, told ESG Investor that the statement is “very helpful and very timely”, noting that mandatory human rights and environmental due diligence is “a key part of the corporate regulation puzzle”.

“It’s an important signal that the broader business community and investors will be supportive of such a proposal,” she said.

Otten added that the proposal should clarify board obligations for oversight of sustainability-related processes such as reporting and due diligence...